If you buy shares in a flotation, presumably you’re hoping for your investment to have a healthy start to life as a listed company, and at least some promising early results.
Sadly, if you’d bought Aston Martin Lagonda (LSE: AML) shares at IPO in September 2018, you’d be facing something very different today. The shares are, as I write, down 80% from their opening price, including a 15% crash Thursday morning.
There are two reasons for the latest slump.
Big loss
Results for 2019 show a 9% drop in revenue, with adjusted EBITDA slumping by 46%. The company managed to turn a £72.8m operating profit in 2018 into a loss of £36.7m, with an adjusted loss per share of 32.1p.
Net debt soared to £876.2m at 31 December 2019, from £559.5m a year previously. That’s not far short of revenue, and it puts the company on an adjusted leverage of 7.3 times.
Addressing the outlook for the company, the update said that “2020 is the year in which the business will be reset in order that it can start to operate as a true luxury car brand. This process is absolutely necessary for the long-term performance and value of the company.”
While there’s no questioning the necessity spoken of in that second sentence, is the first one really saying what I think it says? We’re well over a year on from Aston Martin’s flotation, and it’s only now thinking of how to get operations started?
Disaster
Is this the most badly botched flotation in stock market history? I suspect there are worse efforts out there, but I’m struggling to think of one.
At the same time as the results were released, Aston Martin gave us an update on its turnaround hopes.
Billionaire investor and F1 boss Lawrence Stroll stepped in with a rescue plan last month, putting £182m into the business for a 16.7% stake. The firm has now confirmed the expected further rights issue of £317m, so we private investors can get in if we want. Lucky us, eh? The new issue price of 207p per share represents a 47% discount to Wednesday’s closing price, so that’s another reason the shares slumped on Thursday.
Reboot
If Aston Martin is to avoid going bust (which has happened seven times so far in its history), there’s no doubt it needs this big cash injection to stand any chance. But it also needs some sort of workable strategy, and so far I haven’t really seen one. All I’m hearing is something along the lines of: “Well, that was a flop, so let’s raise more cash and try the same thing again,” followed closely by “how do you make a profit selling luxury cars? Anyone got any ideas?“
Well maybe that’s a bit extreme, but the strategy seems to be to carry on making the cars, and hope new models will be more popular and will sell better.
Do I need to tell you that I wouldn’t go anywhere near Aston Martin shares? I’ve thought it was a potential disaster right from day one, and I’ve seen nothing to change my mind as we head further into 2020.